State Treasurer uses accounting method to help fund pension plan

Essentially, that’s the policy Treasurer Elizabeth Muoio enacted when she increased the assumed rate of return on the state’s $73 billion pension plan to 7.5 percent from 7 percent.

In pension accounting terms, the increase is significant. The state, when projecting the funded status of its pension plan over the next decade, was able to assume an annual rate of return on its investments of 7 percent. By raising that assumption by just one-half of one percent, the state can assume that it will have a greater amount of assets over the next 10 years when it calculates what it has versus what it owes in pension obligation payments.

That should help the state’s pension plan, which is only 30 percent funded – meaning that it only has 30 cents for every dollar that it owes in pension payouts over the next 10 years. The state’s office of the Treasury said that the increased assumption lowers the projected $235 million contribution that the state needs to make this year in order to keep the plan at acceptable funding levels.

The state’s Republican officials, however, say that the increased assumed rate is merely an accounting trick that masks the real problem of underfunding, and that Gov. Phil Murphy ordered the increase to squeeze money out of the state’s budget. In 2015, former Gov. Chris Christie lowered the assumed rate to 7 percent from 7.65%.

“The new rate of return is higher than most other pension systems and is completely baseless,” said Assemblyman Edward Thomson (R – 30th District), in a statement. “The goal is to fully fund the pension system as quickly as possible, not kick the can farther down the road.”

On Thursday, Muoio said that the increase is consistent with what other states have recently done with their public pension plans.

“The path we’ve laid out takes into account the alarms that were sounded late last year, when the state took the widely unprecedented step of lowering the rate so precipitously,” she said.